Tax rejig plea to help MFs

Our Special Correspondent

Mumbai, Feb. 13: Sebi today proposed that the tax exemption limit under Section 80C of the income tax act — which covers all popular investment choices of the taxpayer — should be enhanced to Rs 2 lakh.

The move is designed to help various mutual fund schemes to qualify for these tax breaks.

According to Section 80C, investments up to Rs 1 lakh are eligible for deduction from the gross total income, bringing down the total taxable income of the taxpayer. Investments made in equity-linked savings scheme (ELSS) are eligible for tax benefit under this section.

The market regulator, which has been considering ways to drum up retail investment in mutual funds, has suggested that tax incentives should be given to channelise household savings into long-term investment products.

The Sebi board that met in Delhi today said the Rajiv Gandhi Equity Savings Scheme — which extends tax breaks to newbie investors in the stock markets — could also be brought within the ambit of the enhanced ceiling.

If the ceiling under Section 80C could not be raised to Rs 2 lakh, the regulator said the government could consider granting an additional tax incentive of Rs 50,000 under Section 80C to a long-term product such as the Mutual Fund Linked Retirement Plan.

Capital market circles said while these proposals were welcome, it could only be considered by the next government as the finance minister is unlikely to announce any tax-related changes in the vote-on-account next Monday.

The Sebi board also approved a long-term policy for the mutual fund sector to boost savings into the industry. It also included certain non-tax incentive proposals. The board proposed that capital adequacy (minimum networth) of the asset management companies should be increased and employee provident fund organisations (EPFO) be allowed to invest up to 15 per cent of their corpus in equities and mutual funds.

It also suggested that the members of EPFOs earning more than Rs 6,500 per month should be given the option to shovel a part of their corpus into a mutual fund product of their choice.

At present, navratna and miniratna central public sector enterprises (CPSEs) are permitted to invest in public sector mutual funds regulated by Sebi. It has been recommended that all CPSEs be allowed to choose from any of the Sebi registered mutual funds for investing their surplus funds.